Why budget? Corporatize the railways instead

Narendra Modi claims to be a radical reformer. He envisages a quadrilateral of bullet trains connecting India’s four metro cities, with more to follow. However, this cannot be done without radical surgery to rectify the total mess in the current structure and finances of the Indian Railways.

Modi must declare he will convert the railways, currently a departmental enterprise, into a number of listed corporations within two years. Simultaneously , he should abolish the annual ritual of the railway budget. This is a colonial relic that has no place in modern India. It simply places undesirable, unbearable political burdens on India’s urgent commercial transport needs.

After corporatization, Modi can sell 25% of the new corporations to the public over two years, raising perhaps Rs 50,000 crore and easing fiscal strains. Once listed in stock markets, the new corporations will be able to raise fresh equity and debt through the capital markets to finance the bullet train quadrilateral and other major schemes. The government can subsidize any categories of freight and passenger traffic through a transparent grant from the general budget. This will free the rail corporations to behave as commercial entities, catering to India’s urgent transport needs instead of being political playthings.

The railways already have 14 fully owned enterprises including the Container Corporation, which runs container trains. It is a blue chip that has long been listed on stock markets and attracts huge sums from private and foreign investors.

The Konkan Railway Corporation is a separate but unlisted unit, and so too is the new Dedicated Freight Corridor Corporation. Konkan Railway chief E Sreedharan gained fame through his highly efficient launch of first the Konkan line and then the Delhi Metro. Modi can build on these successful examples to produce a string of well-run, listed rail corporations, including a Bullet Train Corporation.

The British Raj devised a separate railway budget in 1924.

Various private lines had been acquired by the Raj during and after World War I, representing by far India’s greatest industrial assets. Railway revenues were comparable to those of the colonial government itself. So the Raj decided to present a separate annual railway budget.

This practice continued after Independence. Railway revenue in 1950-51 was Rs 232 crore, not far short of government revenue of Rs 347 crore. But soon new government corporations in many fields became bigger than the railways. And the Union Budget itself expanded so fast that it dwarfed railway revenues.

In the interim budget for 2014-15, government revenue was estimated at Rs 11.67 lakh crore. But the income of the railways was only Rs 1.65 lakh crore. Indeed, this was far less than that of many other public sector corporations.

Indian Oil Corporation led the pack with sales of Rs 4.72 lakh crore in 2013-14, followed by BPCL (Rs 2.4 lakh crore) and HPCL (Rs 2.23 lakh crore). The consolidated earnings of the State Bank of India group were Rs 2.25 lakh crore. In the private sector, Reliance Industries Ltd had a consolidated revenue of Rs 4.35 lakh crore, almost thrice that of the railways. Nobody talks of a separate budget in Parliament for Indian Oil or SBI, both of which are larger. So, why have a railway budget?

Keeping the railways as a government department with a separate budget has led to gross neglect of financial principles and cynical politicization of railway finances, jobs and production centres. Back in 1991, a report of the Asian Development Bank estimated that the railways had half a million excess workers, but these were never trimmed.

As railway minister in the early 1980s, Abdul Ghani Khan Choudhury gained fame for using his position to distribute jobs and contracts. When Ram Vilas Paswan became railway minister in 1996-98, he made his own rather obscure parliamentary constituency -Hajipur -a zonal railway headquarters, replete with jobs and patronage. Mamata Banerjee announced several new passenger trains in her own state.

More recently , the railways opened a new coach factory in Rae Bareli, constituency of Sonia Gandhi. All this must stop.

Passenger travel is in no sense an essential good requiring subsidies. Yet successive railway ministers have kept raising freight rates to keep passenger rates artificially cheap. An analysis by Avinash Celestine in The Economic Times reveals that the ratio of freight to passenger rates has risen in India from 2.13 in 1950 to 3.68. In China, it is less than one. That’s why China is a low-cost, highly competitive country, while India is the exact opposite.

Ending the politicization of the railways will be impossible without corporatization and abolition of the railway budget. Modi must go for it.

DISCLAIMER : Views expressed above are the author's own.

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Swaminathan S Anklesaria Aiyar is consulting editor of The Economic Times. He has frequently been a consultant to the World Bank and Asian Development Bank. A popular columnist and TV commentator, Swami has been called "India's leading economic journalist" by Stephen Cohen of the Brookings Institution. "Swaminomics" has been appearing as a weekly column in The Times of India since 1990. In 2008, The Times of India brought out the book "The Benevolent Zookeepers - The Best Of Swaminomics".

Swaminathan S Anklesaria Aiyar is consulting editor of The Economic Times. He has frequently been a consultant to the World Bank and Asian Development Bank.. . .